Silicon Valley? No, Chilecon Valley

Silicon Valley? No, Chilecon Valley
In previous blog posts regarding fintech in Latin America my position was, and remains, that one of the reasons for being behind is that it lacks of a “Silicon Valley” equivalent. Efforts to create a fintech ecosystem, as Finnovista is doing, become a good alternative to overcome the absence of a geographical pocket of innovation. Particularly consider the market fragmentation of Latin America comprised by 19 countries, some of which have 3M inhabitants to Brazil having +200M. People in most countries may speak the same language but markets are far from being similar just for that. Under (or against?) these circumstances, Chile is working to become Latin America’s Silicon Valley. One of its most attractive initiatives is “Start-Up Chile”, created four years ago to transform the Chilean entrepreneurial ecosystem. It began with a question: “What would happen if we could bring the best and brightest entrepreneurs from all around the globe and insert them into the local ecosystem?” The initiative offers work visas, financial support, and an extensive network of global contacts to help build and accelerate growth of customer-validated and scalable companies that will leave a lasting impact on the Latin American ecosystem. The idea is to make the country a focal point for innovation and entrepreneurship within the region. Start-up Chile, with only four years, is a start-up itself but it has a good starting point and great potential:
  • Chile has demonstrated for years its entrepreneurial spirit, with Chilean companies competing successfully in various industries (air transportation, financial services, and retail, just to mention a few) and a stable economy.
  • This year two Chilean start-ups were the winners of the BBVA Open Talent in Latin America: Destacame.cl, aiming to financial inclusion by creating a credit scoring based on utility payments; and Bitnexo which enables fast, easy and low cost transfers between Asia and Latin America, using Bitcoin.
While other countries and cities in the region are working in offering support to start-ups, it seems Chile is leading the way. Hopefully this triggers some healthy competition in the region, which in the end will benefit all. In the meantime, let’s meet at Finnosummit in Bogota – Colombia next February 16th. Join financial institutions, consultants, tech vendors, startups and other digital ecosystem innovators, to learn how startup driven disruption and new technologies are reshaping the future of financial services in the region. Remember to use Celent’s discount code C3L3NT20% for a 20% discount on your conference ticket.  

Consumer mobile apps in Property and Casualty: Webinar follow up

Consumer mobile apps in Property and Casualty: Webinar follow up
On April 16 and 17 we hosted our “Consumer Mobile Apps” webinar focusing on P&C apps availability in Latin America. We had a Spanish and an english version of the webinar. The survey behind the webinar included the review of 169 insurers, focusing on the top 10 of each market (20 countries). Before you jump to tell me that I am failing on math 101, let’s put a note here: not all countries in Latin America have 10 P&C insurers. A question that came up was about the role of brokers & insurers regarding customer -facing apps. There are at least two angles to cover this question: 1) Insurers and brokers competing to win customers/consumers 2) Insurers and brokers collaborating to win customers/consumers Our research shows that insurers and brokers are investing, with different pocket sizes, to win customers attention through apps. First thing to consider here is that consumers don’t just want an app. They want to have easy interactions. Apps are just another cog in the engine. As investment (and capacities) are needed to provide these experiences it is most likely that larger brokers will be able to play this game along with insurers. Now, when we take a look to the intermediation in insurance in Latin America, banks and retailers play an interesting role too. Consumers usually interact more with these than with brokers and insurers, so if banks and retailers decide to invest in an app that would also provide access to the financial and non-financial products the consumer has with them (i.e. credit cards, product and service offers, insurance, travel? in the case of a retailer), would the consumer be more likely to use this app instead the one provided by the insurer? More broadly, will the consumer prefer to buy the insurance through a bank, a retailer, (fill in the blanks with the distribution channel of your choice) or through the insurance company? It seems that insurers will play an important role in providing an app every time they have a direct model or by collaborating with the distribution channel that can’t manage these interactions by their own. On all other circumstances it is more likely to expect the app coming from the distribution channel that has a meaningful interaction with the customer. There are some good examples of collaboration between insurers and agents. Allied Insurance, Celent’s Model Insurer Award winner for the digital catregry this year, enabled agents to brand the insurance app. The mobile app serves as another way for Allied to extend and enhance customer service. Select agency partners dynamically brand the customer experience with their own custom logo. Customers can view policy, save insurance ID cards for offline viewing, make payments, view agency information, get accident help and roadside assistance and start a claim. Future plans include expanding the dynamic branding feature; building additional personalized digital enhancements for its agents and customers. The project from concept to full delivery took approximately eight months. They already had 22,000 downloads and more than 200 independent agency partners personalized the app with their own agency brand. The app also enabled thousands of mobile payments. It’s a perfect mix of Broker/Agent presence with the needs of the insurer. If you’re interested in learning more about effective technology use in insurance be sure to read about our Model Insurer Awards finalists and winners at http://www.celent.com/reports/model-insurer-2014-case-studies-effective-technology-use-insurance. Another case highlighted in the report, John Hancock’s sales tool to empower its agents (though this one is for Life insurance):
  • JH Life BriefCase: one central place to store, organize, and manage illustrations and client related information.
  • JH Marketplace: manage sales and underwriting materials, increasing speed of distribution, decreasing cost of delivery, maintaining version control for compliance.
What is the potential for mobile apps in Latin America? This was another area of interest for those attending the webinar. Latin America has surpassed 100% mobile phone penetration. On average, there are 107 mobile phones per 100 people across the region. However, this doesn’t mean everyone in Latin America has a phone or that there’s connectivity everywhere. Smartphone penetration is growing in Latin America, but adoption rates are behind more mature markets such as the US and UK. Smartphone penetration in Latin America is around 32%, though this differs significantly from country to country. Nevertheless, Brazil, for example, has more smartphone users than Germany or France. Brazil and Mexico together have more smartphones than Australia has inhabitants. Consumer behavior in Latin America should help to accelerate adoption. Increasingly, consumers are using mobile devices to access the Internet. In Mexico, for example, 80% of smartphone users access the Internet daily, almost 90% access an app daily, and 38% did not purchase something on a store as a result of a search on the smartphone. Apps are also becoming important in enabling new business and service models; providing a platform to distribute, in a cost-efficient way, insurance products that are less attractive to sell through traditional channels. Microinsurance is an example, as are e-wallet capabilities banks are making available, even in feature phones. As smartphones become more popular and inexpensive (as announced by the major phone manufacturers in the Mobile World Congress at Barcelona) this trend will accelerate and open more possibilities for financial institutions, beyond the top tier customers. Institutions operating in the insurance space such as banks, retailers and non-traditional players such as Google seem to understand this very well. Finally, from Brazil we got a question around what is it required before even starting with an app. I believe this could actually be a good title for a report! As we don’t have enough space here I would summarize in the following:
  • Understand your customer – who/how/when/why he buys from you. Customer needs to be in the center of the design. We have moved to an environment where “the user” is beyond the insurer (and IT department) control.
  • Don’t focus just on the mobility concept, most likely it will require an omni-channel strategy to deliver what they expect. Consistency and integration across channels is of vital importance.
  • Work on your processes. Simplify and adapt to new channels and customers’ expectations.
  • Invest in a core system that will be able to accommodate these processes, integration points and basically that will provide you with the flexibility to evolve in time with agility.
  • If you insist and only want to focus on mobility, assuming everything else in your company works fantastically well, then portals/websites should be part of your mobile strategy besides apps. Use responsive design so it is easier to deliver content on any device (and size of screen).
If you are interested in our research about mobile, there is a series of reports published and some more coming out soon. Also expect a couple of reports about Online insurance. If there is any specific theme you would like to see us cover, please let me know. See you around!

2014 Latin America Outlook

2014 Latin America Outlook
The following text was published today in Inter-American Dialogue’s Financial Services Advisor under the title: “What is driving the insurance market in Latin America?” I provided my view to FSA in advance, and now that it is out there I thought it made sense to share it with you through our blog. Growth continues to be a common theme throughout the region, though not at the same pace that before and not equally in all countries. The Pacific Alliance countries have been growing faster than Mercosur countries, for example. Insurance in Latin America has its own dynamics and has been growing year over year, even beyond GDP increase, and is expected to continue this trend through 2014. A growing middle class is driving insurance buoyance in the region, with Brazil much setting the tone. Estimates indicate that 40M people have gone from living in poverty to the middle class in the past decade in Brazil. Nevertheless, there is a large number of people in the base of the pyramid (BoP) which is also of interest of insurers. Infrastructure investments, trade, and group life and benefits to attract employees are key drivers for commercial insurance growth. We are seeing moves towards consolidation in certain countries which are imposing stronger capital requirements and also acquisitions and new entrants into high growth potential markets, such as Brazil, Colombia and Peru. Competition is increasing and new segments are being targeted with more focus. All this is driving higher investments from insurers as well as competition for qualified talent in the marketplace. Some countries are moving towards a stricter risk-based capital measurement, and the rest should move in the same direction as part of a global and regional trend. In many countries sales practices are far from innovative and what customers expect to be. There is a need to evolve in the use of distribution channels and provide a better customer experience. Most insurers are still tied to legacy systems that impose a burden to become more competitive, efficient and smart. Rising inflation, weakening of financial market due to lower quality of loans (as they compete for the raising middle class); lower demand of products from China (mostly commodities), Europe and USA, and risk aversion from foreign investors are some of the concerns shadowing the region’s potential.

Microinsurance as a Disruptive Force

Microinsurance as a Disruptive Force
Some of you may be familiar with Michael Raynor’s work around disruption. In his latest book he refers to being deliberately disruptive and how most companies that disrupt powerful incumbents start out focused primarily and often exclusively on connecting with a specific segment of the market, one that is poorly served — or not served at all. The microinsurance market is, with no doubt, an excellent source of innovation for insurers. It matches perfectly with the underlying conditions required for disruption to occur. Microinsurance is a foothold to an underserved, untapped, and fragmented market with a high cost to serve under the present business model. Innovative approaches to serve this market, including the required technologies, could afterwards be used with success upmarket, where insurers could benefit from agility, scalability, low operating costs, and the lessons learned by servicing a market with totally different dynamics. Innovation around product, pricing, packaging, distribution, processes, and technology, just to mention a few aspects, will be required skills. A good example is Bradesco Seguros in Brazil. Bradesco offers Accidental Death through a product named “Primeira Proteção Bradesco” which sold 1.3 million policies within the first year with monthly premium of US$3.50, single benefit of RS.20,000.00 and 1 monthly sweepstake of RS.20,000 (US$ 10,800). In fact, sweepstakes are an important marketing tool; apparently the most important motive for customers in buying the insurance product.  Distribution is done through Banco Bradesco’s own network of +3,500 branches, +25,000 banking correspondents (supermarkets, pharmacies, grocery stores, etc.) and mobile (sms). For those cities and villages close to the Amazon River, accessible only by boat and out of Banco Bradesco’s traditional network, it required technological support and some inventive: Banco Bradesco introduced a boat containing a bank branch. Technology, such as web/mobile on.iBusiness and traditional POS, is used by agents and correspondents to manage the complete end-to-end process. Focus in simplicity and speed using an accelerated enrollment process by capturing customer data from the CPF or Social Security number. Banco Bradesco has years of experience financially serving the segment market aimed by microinsurance and they are taking advantage of this, though they encountered some more challenges you can read about, along with more real cases and in depth discussion around Microinsurance, in our recent report “Microinsurance in Latin America: Disruption in Practice” at http://www.celent.com/reports/microinsurance-latin-america-disruption-practice

Looking past the functional arms race

Looking past the functional arms race

In our recent work in Latin America, it is clear that in the process of selecting core systems for countries such as Argentina, Brazil, Chile, Colombia, Mexico and Peru, Insurers have been more focused on delivery and support capabilities than in the product.

All vendors claim quick time to market, low TCO, quick ROI, strong product configuration capabilities and more. And when dealing with the top vendors, there is little material difference in features and functionality. Although functional requirements account for most of the items in a RFP the weight of non-functional requirements including delivery and support capabilities has matched and even surpassed the first. This is an approach that we have been advocating in other regions.

Functionality is now an arms race. Insurers, even in emerging regions like Latin America, must invest more in evaluating service and delivery capabilities.

With a plethora of new vendors in the region offering solid solutions proven elsewhere in the world, regional insurer have three important questions that vendors need to address:

1 . “Will the vendor have the capabilities to deliver and support the product in this region? “

2. “What will I need to change (people, process) in order to take advantage of these new highly configurable systems that promise to put everything, well almost everything, in hands of the business users?”

3. “How do I really validate that the product will support our lines of business, the products we sell and the channels and processes we want to have in place to better serve our distribution channels and customers?”

In response to these questions, there are several interesting points to make.

It is clear that vendors in the region bring a wide range of different business models. Insurers in most Latin American countries have been used for decades to have local/regional support from vendors which acts as a high entry barrier for new participants. While some of the new players have decided to work through system integrators or implementation partners, they still need to demonstrate how successful those relationships can be to deliver in the short term and to supersede in the long term. Insurers are looking for credible relationships (between vendors and partners) and processes in place in advance for knowledge transfer. Domain expertise, sufficient trained staff and delivery capabilities in similar projects are key aspects they will consider when evaluating the local/regional partner. Finally, how involved is the vendor going to be in the implementation process is also under consideration. Vendors who are amongst the first to prove some track record in the region will be the vendors who succeed in the future.

When it comes to validating the product against the insurer business model, Celent points insurers to the process of the RFP. There are smart ways of validating and engaging with vendors early in the review process to strike a balance between what the solution is capable of and the organizations willingness to change its business model. This new approach focuses more on system review in early stages of the process and making stakeholders and users engage in the quest of understanding what is possible and the transformation required within the organization since start.

This focus on service delivery and business transformation over functional requirements is the new reality in Latin America and one that Celent will continue to support.

Seeking Growth Opportunities? Follow The Numbers

Seeking Growth Opportunities? Follow The Numbers

In my previous post: “Latin American Markets Are Hot for a Reason”, we discussed about the significant growth of this region compared to industrialized countries and how GDP of emerging markets was expected to match their industrialize counterparts 10 years from now. For those joining just now, growth expected for the Latin American region in 2011 is 4.5%; the world rate will be 3.2%; and in industrialized countries, growth will only be 1.4%. The trend since 2002 has been more growth from emerging markets than industrialized countries and we expect this to continue this way for the next 10 years.

Has the Insurance Industry in Latin America gained any benefit from this growth?

Equally to the economic growth trends described before, Life insurance in Latin America has been experiencing an average premium growth rate of 8% for the period 2000-2009 while non-life insurance premiums have grown an average of 6.5% in the same time. North America instead has been very steady in the life insurance market and only in non-life has experienced some growth at an average of almost 2.5%. Europe has not done much better with just over 3% increase in premiums in non-life and almost hitting 3% increase in life insurance in the same period.

Last year, Latin American life insurance market experienced a 12% growth in premiums with Brazil, Chile, Argentina and Peru as main contributors and expecting to maintain double digits growth rates next year although some challenges remain. Also as a consequence of the good economic performance of the region, non-life insurance premiums increased 5.5% and we continue to expect growth driven by investments mainly in infrastructure and energy in the short and medium term.

On the other hand and considering 2010 figures, North America and Western Europe count for 60% of the world market share of life insurance and 72% of non-life, Latin American and Caribbean life insurance market represented only a world market share of 2.2% and non-life 4.0%.

So, evidently the opportunity is not in the current size of the market. Where to find it?

I believe that insurers are seizing opportunities of a market that will continue to grow and that has the potential to drive premium to similar ratios than the ones found in industrialized countries.

Consider for example the insurance penetration ratio (premiums as % of GDP). In 2010 Latin American insurance penetration ratio was 2.7% very low compared to 7.9% for North America; 8.4% for Western Europe or even Asia with 6.2%. Emerging markets have a ratio of 3% and industrialized countries 8.6%. The world in average has a ratio of 6.9%.

As for insurance density (premium per capita) in 2010, Latin America shows a low ratio of 219.1 USD per capita when compared with 3724.4 for North America´s; 2890.3 for Western Europe or even Asia with 281.5. The world in average has a ratio of 627.3.

The insurance industry clearly understands the unique opportunities this ratios bring into their business. That is why we have more insurers looking into build or grow capacities in Latin America. What to expect? Looking in the future we should expect a very positive trend overall. Many things have changed in a positive way in the region and those companies taking advantage of it, will be able to produce extraordinary benefits and value for shareholders and stakeholders.

Technology will play a very important role for insurers competing in this market. There is a need to replace legacy systems and continue to incorporate best practices. Rules based underwriting, Straight Through Processing, standardized xml for data interchange, cloud computing, BPO and improved CRM techniques just to mention some. I hope to have some new reports on this subject soon for you, in the mean time I am available for some one-to-one consulting on Latin American issues.

To anyone who is considering doing business in Latin America just have in mind that although the region presents significant and unique perspectives of growth it comes along with some challenges. You should expect some countries to react defensively at the sight of the international crisis. Some protectionism should be also expected along with setbacks for commerce and investment. Companies will need to consider these in their plans and have a management team, processes and technology to overcome them.

Also bear in mind that although Latin America is always seen as a region it has its significant differences between countries not just cultural but social, economic and political as well.

We at Celent can now help you to navigate through the Latin American experience.

Latin American Markets Are Hot for a Reason

Latin American Markets Are Hot for a Reason

Let me tell you this: I love Latin America!

Latin America is often viewed as a travel destination, with good reason. Just consider its amazing beauty, from Antarctica to Mexican Los Cabos. Its history, from the time of the Mayas, Incas, and natives to modern days. It has many locations that provide unique views of history, such as Machu Pichu and Camino del Inca in Peru; Tikal and Antigua in Guatemala; even in thriving Mexico City, where at one corner from “El Zocalo” you can see how civilization evolved with the clash of three cultures. Did I mention tasty wine and food and gorgeous beaches?

But another aspect of Latin America is bringing visitors: the thriving economy. There are some exciting things going on in Latin American business, and insurance is no exception.

In the not-too-distant past, Latin America was an afterthought for many global businesses. This was a rational approach, given the constant economic turmoil, weak democratic governments, and closed economies. But things have changed. Since the early ’80s democracies have become more mature. Economies have opened, and countries have invested in infrastructure. An increasingly skilled labor pool has increased Latin America’s export value.

Consider Brazil, the dominant economy in Latin America. Since 1939, reinsurance in Brazil had been solely the domain of the government, via the Brazilian Institute of Reinsurance (IRB Brazil Re). On January 15, 2007, Complementary Law 126 eliminated the state monopoly. Also, not too many years ago, Brazil had a strict policy toward importing IT, which resulted in most technology being produced locally, both parts and labor. Today in Brazil (or any other Latin American country), you can find most of the new electronic gadgets and technology available in the rest of the world.

In the last few years Brazil and Peru have been awarded an Investment Grade note, attracting a significant inflow of money to their economies.

Brazil and the group of countries from emerging markets known as BRIC (Brazil, Russia, India, and China) have experienced phenomenal growth since 2002. Brazil drives most of the growth experienced by its partners in Mercosur (the economic treaty that groups most of the South American countries). BRIC countries are also important customers for most of the relevant countries in Latin America.

What we are seeing is that Latin America is experiencing more favorable international commerce than the industrialized world, which is experiencing very low growth rates.

Growth expected for the Latin American region in 2011 is 4.5%; the world rate will be 3.2%; and in industrialized countries, growth will only be 1.4%.

BRIC economies expect growth of 4.0%, 4.5%, 7.8%, and 9.0% respectively, helping emerging markets achieve growth of 5.8% by the end of 2011.

When you compare this growth to the 1.4% average in industrialized countries, you start to understand why many companies are looking into Latin America and emerging countries in general as a place to invest, and not just opportunistically.

To understand the impact this will have, we might want look at global share of GDP. Emerging countries had 35% of global share of GDP 10 years ago. Today they have 40%, and 10 years from now they could have 50%, equal to the developed markets.

The increase in economic activity in the region will create more opportunities for insurers because enterprises will need to protect their assets, properties, and employees. Personal wealth growth will create opportunity for insurance products related to wealth management and protection, investment, savings, and capital accumulation.

Of course there is still room for improvement to make the Latin American market even more attractive. Economies, investment policies, and money flows should be more tightly assembled and coordinated with other countries from inside and outside the region. But in general things are moving in the right direction.

At minimum, most insurers and vendors should be thinking about the potential for Latin America as an expansion market.